As a seasoned financial analyst with over two decades of experience navigating the intricacies of securities regulation, I find myself increasingly concerned about the SEC’s approach to digital assets. The recent move by Kraken, a prominent player in the crypto space, to challenge the SEC’s stance on cryptocurrencies as unregistered securities is not only commendable but also necessary.
Kraken, in response to the U.S. Securities and Exchange Commission (SEC), emphasized that their method of classifying digital assets as securities may be faulty.
American cryptocurrency platform Kraken has chosen to challenge the Securities and Exchange Commission (SEC), following a lawsuit claiming Kraken trades unregistered securities. The accusation is that Kraken offers for sale and lists multiple cryptocurrencies that are considered securities, thus violating federal regulations.
In a court document responding to the SEC’s lawsuit, Kraken stated that there have been no instances where investment contracts were claimed to be formed on their platform. They further explained that the digital assets themselves do not constitute investment contracts because they lack the rights and obligations associated with stocks, bonds, or other financial instruments regulated by Congress. Instead, Kraken asserted that only the digital assets are being traded, brokered, or settled on their platform.
The cryptocurrency platform defended its stance by referring to the Howey Test, which helps identify whether digital assets are considered securities or not. It argued that the Securities and Exchange Commission (SEC) has yet to demonstrate, using this test, that the assets the SEC labels as securities actually fit that classification. Moreover, it refuted the SEC’s accusations of acting as a securities exchange, broker, dealer, or clearing agency.
Concerning the assets that the SEC alleges Kraken sold as unregistered securities, Kraken firmly contests this claim. They argue that assets such as ADA, ALGO, ATOM, FIL, FLOW, ICP, MANA, MATIC, NEAR, OMG, and SOL (collectively known as the “Digital Assets”) are not considered securities or investment contracts under Sections 5, 15(a), and 17A of the Securities Exchange Act of 1934.
The SEC Was Under Fire for Its Recent Comments
In response to Kraken’s denial of certain accusations, the Securities and Exchange Commission (SEC) noted in a footnote of another filing concerning a securities violations case against Binance, that the phrase “crypto asset security” – a term they frequently use – does not exclusively refer to tokens. This assertion has been met with criticism from Paul Grewal and Stuart Alderoty, heads of legal at Coinbase and Ripple respectively, who argue that the SEC has consistently used this term to denote tokens they classify as securities.
Grewal stated, “It’s undeniable that the Securities and Exchange Commission (SEC) considers tokens as securities, given their long history of regulation through enforcement actions. Why deceive the court with such inconsistency?” Alderoty commented, “Perhaps it’s high time for the SEC to acknowledge they’ve twisted themselves into a tangled mess of contradictions.
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2024-09-17 23:05